INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA
NOTIFICATION
Hyderabad, the 20th March, 2024
Insurance Regulatory and Development Authority of India (Actuarial, Finance and Investment Functions of Insurers) Regulations, 2024
F. No. IRDAI/Reg/10/204/2024.—In exercise of the powers conferred by clauses (g), (h), (i), (ia), (ib), (y), (z), (za), (zd) and (zab) of sub-section (2) of section 114A, Sections 11, 13, 20, 27, 27A, 27B, 27C, 27D, 28, clause (a) of sub-section (3) of section 29, 49, 64V, and 64VA of the Insurance Act, 1938, (4 of 1938) and section 14 and 26 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), the Authority, in consultation with the Insurance Advisory Committee, hereby makes the following regulations, namely:
CHAPTER-I
PRELIMINARY
Short title, applicability and commencement:
(1) These regulations may be called the Insurance Regulatory and Development Authority of India (Actuarial, Finance and Investment Functions of Insurers) Regulations, 2024.
(2) These regulations shall come into force from the date of their publication in the Official Gazette or 1st April, 2024 whichever is later.
(3) These regulations are applicable to all insurers including those engaged exclusively in reinsurance business, unless otherwise specified.
(4) These regulations shall be reviewed once in every three years from the date of its publication, unless the review or repeal or amendment is warranted earlier.
2. Objectives: The key objectives of these regulations are to ensure that:
(1) sound and responsive management practices are in place for effective discharge of actuarial, finance and investment functions and analysis, covering the areas including but not limited to the valuation of assets and liabilities, regulatory reporting, bonus distribution, asset-liability management, solvency, investment and risk management;
(2) regulatory returns are prepared and reported in accordance with applicable standards, principles and policies to provide a true and fair view of state of affairs of the insurer;
(3) policyholders’ interests are protected and
(4) ease of doing business is facilitated.
3. Definitions:
(1) In these regulations, unless the context otherwise requires-
(i) “Act” means the Insurance Act, 1938 (4 of 1938);
(ii) “Actuarial Practice Standards” means the standards of practice and guidance notes issued by the Institute of Actuaries of India;
(iii) “Actuary” means an actuary as defined in section 2(1) of Insurance Act, 1938;
(iv) “Authority” means the Insurance Regulatory and Development Authority of India established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);
(v) “Available Solvency Margin” means:
In case of a Life insurer, the excess of value of assets subject to admissibility criteria specified under these regulations, available in policyholders’ and shareholders’ funds over and above the value of Mathematical Reserves and other liabilities of policyholders’ and shareholders’ funds;
In case of a General insurer or Health insurer, the excess of value of assets subject to admissibility criteria specified under these regulations, available in policyholders’ and shareholders’ funds over and above the Technical Liabilities and other liabilities of policyholders’ and shareholders’ funds;
In case of a reinsurer, the excess of value of assets subject to admissibility criteria specified under these regulations, available in policyholders’ and shareholders’ funds over and above the Mathematical Reserves, Technical Liabilities and other liabilities of policyholders’ and shareholders’ funds;
(vi) “Competent Authority” means
(a) Chairperson or
(b) such whole-time member or such committee of the whole-time members or such officer (s) of the Authority, as may be determined by the Chairperson.
(vii) “General insurer” means an insurer transacting general insurance business as defined in the Act;
(viii) “Life insurer” means an insurer carrying on life insurance business as defined in the Act;
(ix) “Mathematical Reserves” means the provisions determined in accordance with these regulations to cover liabilities (excluding liabilities which have fallen due and liabilities arising from deposit back arrangement in relation to any policy whereby an amount is deposited by re-insurer with the cedant) arising under or in connection with policies or contracts of life (Re)insurance business which includes specific provision for adverse deviations of all the bases including but not limited to mortality and morbidity rates; lapse rates, interest rates and expenses; and any explicit provision made in the valuation of liabilities;
(x) “Premium Deficiency Reserve (PDR)” means the reserve held in excess of the unearned premium reserve, which allows for any expectation that the unearned premium reserve will be insufficient to cover the cost of claims and expenses incurred during the period of unexpired risk;
(xi) “Required Solvency Margin” means the amount arrived in the manner as specified under Part III or Part IV or Part V of Schedule-I of these regulations as applicable subject to a minimum of fifty per cent of the amount of minimum capital as stated under section 6 of the Insurance Act, 1938;
(xii) “Solvency Ratio” means the ratio of the amount of Available Solvency Margin to the amount of Required Solvency Margin;
(xiii) “Technical Liabilities” means the provisions determined in accordance with these regulations to cover liabilities arising under or in connection with policies or contracts of General (Re)insurance business or Health (Re)insurance Business which include specific provision for adverse deviations of all the bases of actuarial valuation.
(xiv) “Unearned Premium Reserve (UPR)” means an amount representing that part of the premium written which is attributable and to be allocated to the succeeding accounting periods;
(2) All words and expressions used herein and not defined in these regulations but defined in the Insurance Act, 1938 (4 of 1938), or the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999) or any Rules or Regulations made thereunder shall have the meanings respectively assigned to them in those Acts or Rules or Regulations.
CHAPTER- II
GUIDING PRINCIPLES FOR ACTUARIAL, FINANCE AND INVESTMENT FUNCTIONS
4. Principles governing the Actuarial, Finance and Investment functions of insurers
(1) Mathematical Reserves or Technical liabilities, as the case may be, are based on sound actuarial principles;
(2) Solvency margin of insurer is ensured at least at the control level at all times;
(3) Financial statements reflect true and fair picture of the financial condition of the insurer;
(4) Funds are invested such that the policyholders’ liabilities are met as and when due;
(5) Suitable and adequate resources are available with insurer to carry out actuarial, finance and investment functions.
5. Board approved policies of the insurer
Insurers shall have in place, polices governing areas of actuarial, finance and investment functions, such as bonus distribution philosophy as applicable, asset-liability management, investment and risk management duly approved by the Board of Directors or by the Executive Committee of Management in case of a foreign company engaged in re-insurance business through a branch established in India (FRB).
6. In addition to the above, insurers shall follow the respective provisions as set out below:
(1) Schedule – I: Actuarial functions
(2) Schedule – II: Finance functions
(3) Schedule – III: Investment functions
(4) Schedule- IV: Loans and Advances by Insurance Companies.
(5) Schedule – V: Inspection and Supply of Returns
CHAPTER III
MISCELLANEOUS
7. Power to issue circulars, guidelines and directions
The Competent Authority may issue from time to time circulars, guidelines and directions relating to these regulations, if necessary including but not limited to, with profit committee, applicable norms in respect of Appointed Actuary, Foreign Reinsurer’s Branches, detailed information to be obtained in relation to the statements appended to the Actuarial Report and Abstract, submission of any other additional forms or statements with respect to Life insurance, General insurance, Health insurance and Reinsurance business as applicable.
8. Power to issue clarifications and to remove difficulties
In order to remove any doubts or difficulties that may arise in the application or interpretation of any of the provisions of these regulations, the Competent Authority may issue appropriate clarifications as and when deemed necessary.
9. Repeals
(1) These regulations shall repeal the following regulations from the date these regulations come into force:
a. Insurance Regulatory and Development Authority of India (Actuarial Report and Abstract for Life Insurance Business) Regulations, 2016 and subsequent amendments;
b. Insurance Regulatory and Development Authority (Distributions of Surplus) Regulations, 2002;
c. Insurance Regulatory and Development Authority of India (Assets, Liabilities and Solvency Margin of Life Insurance Business) Regulations, 2016;
d. Insurance Regulatory and Development Authority of India (Assets, Liabilities and Solvency Margin of General Insurance Business) Regulations, 2016 and subsequent amendments;
e. Insurance Regulatory and Development Authority of India (Appointed Actuary) Regulations, 2022;
f. Insurance Regulatory and Development Authority of India (Investment) Regulations, 2016;
g. Insurance Regulatory and Development Authority of India (Preparation of Financial Statements and Auditors’ Report of Insurance Companies) Regulations, 2002 and subsequent amendments;
h. Insurance Regulatory and Development Authority of India (Inspection and Fee for Supply of Copies of Returns) Regulations, 2015;
i. Insurance Regulatory and Development Authority of India (Loans or Temporary Advances to Full Time Employees of the Insurers) Regulations, 2016;
(2) Other provisions which were in existence in the regulations mentioned under sub regulation (1) of regulation 9 above and not mentioned in these regulations shall be provided separately by the circular issued under provision of regulation 7 of these regulations.
DEBASISH PANDA, Chairperson
[ADVT.-III/4/Exty./865/2023-24]
SCHEDULE – I: ACTUARIAL FUNCTIONS
Part I: Definitions
1. General:
(1) “Institute of Actuaries of India” means a statutory body established under section 3 of the Actuaries Act, 2006 (35 of 2006);
(2) “Valuation date” means, in respect of any valuation, the date as at which the valuation is made;
(3) “Ordinarily Resident in India” means a resident in India defined as per the Income Tax Act, 1961
2. Definitions applicable to Life insurers:
(1) “Extra premium” means a charge or premium collected for additional risk exposure beyond the risk factored in deriving the standard premium rates;
(2) “Group business” means business other than individual business;
(3) “Guarantees” means the terms in regard to benefits or premiums or charges, which shall not be altered during the currency of the policy;
(4) “Individual business” means individual insurance contracts issued on single or joint life basis;
(5) “Inter valuation period” means period between two successive actuarial valuations of asset and liabilities of an insurer;
(6) “Maturity date” means a fixed date on which maturity benefit may become payable either absolutely or contingently;
(7) “Non-par policies” or “policies without participation in profits” means policies which are not entitled for any share in surplus or profits;
(8) “Non-participating policyholders” means the holders of “non-par policies”;
(9) “Options” means the rights available to a policyholder under a policy;
(10) “Par policies” or “policies with participation in profits” means polices which are entitled to share in surplus or profits during the policy term as per Section 49 of the Insurance Act, 1938.;
(11) “Policies with deferred participation in profits” means polices entitled for participation in profits after a certain period from the date of commencement of the policy;
(12) “Participating policyholders” means the holders of “par policies” and “policies with deferred participation in profits”;
(13) “Premium payment term” means the period during which premiums are payable;
(14) “Policy Accounts” means funds for each policy under Variable Linked Business and Variable Non-Linked Business;
(15) “Sum at risk”, at any point of time in respect of a policy is the excess of Sum of
{‘Lump sum benefit payable on death or any other contingency covered’}
and
{‘Present Value of the benefits payable on account of death or any other contingency in form of periodical payments including annuity payments’}
Over
{Mathematical Reserves} of the policy
3. Definitions applicable to General insurers:
(1) “Allocated Loss Adjustment Expenses (ALAE)” are claim-related expenses that are directly attributable to a specific claim;
(2) “Claim Reserves” means the reserves in respect of the claims which have already occurred as on the date of valuation;
(3) “Incurred But Not Enough Reported (IBNER) Reserves” means the reserves reflecting the expected changes in the estimates of reported claims including ALAE, if any;
(4) “Incurred But Not Reported Claim (IBNR) Reserves” includes IBNER, estimate for reopened claims, provision for incurred but not reported claims, provision for claims in transit as on the date of valuation and ALAE;
(5) “Outstanding Claim Reserves (OS Reserves)” means the provision made in respect of all outstanding reported claims as on the date of valuation including ALAE;
(6) “Unexpired Risk Reserves” means the reserves in respect of the liabilities for unexpired risks and determined as the aggregate of Unearned Premium Reserve (UPR) and Premium Deficiency Reserve (PDR).
Part II: Appointed Actuary
1. Appointment of an Appointed Actuary:
An insurer registered to carry on insurance business in India shall appoint an actuary, on approval of the Competent Authority, who shall be known as the “Appointed Actuary” for the purposes of the Act.
2. Procedure for Appointment of an Appointed Actuary:
(1) A person shall be eligible to be appointed as an Appointed Actuary for an insurer, if he or she is:
(i) An Ordinarily Resident in India;
(ii) A Fellow member in accordance with the Actuaries Act, 2006;
(iii) A Fellow Member of the Institute of Actuaries of India (IAI), satisfying the following requirements in case of a Life insurer:
(a) At least 12 years of experience in the area of Life Insurance and out of which at least 7 years shall be post fellowship experience.
Provided that, if the applicant has passed the Specialist Application or Specialist Advanced level subject in Life Insurance from Institute of Actuaries of India or from any other institute or body with which IAI has Mutual Recognition Agreement, the experience criteria including post fellowship experience criteria as mentioned in clause 2(1)(iii)(a) of Part II of Schedule-I of these regulations, shall be reduced by 2 years.
(b) At least 3 years post fellowship experience out of 7 years or 5 years as applicable, as specified under clause 2(1)(iii)(a) of Part II of Schedule-I of these regulations shall be in the preparation or review of annual statutory valuation or product pricing of an Indian Life insurer or Indian reinsurer or Foreign Reinsurer’s Branch established in India.
Notwithstanding the above, experience in the area of Life Insurance as a Peer Reviewer or Independent Actuary or Panel Actuary or Actuary certifying the reinsurance returns for Life reinsurance business or experience in actuarial consultancy in Life Insurance business or relevant experience with the Authority shall also be considered.
(c) At least 3 years of experience shall be in the role of middle or senior level management.
(iv) A Fellow Member of the Institute of Actuaries of India (IAI), satisfying the following requirements in case of a General insurer:
(a) At least 9 years of experience in the area of General Insurance and out of which at least 4 years shall be post fellowship experience.
Provided that, if the applicant has passed the Specialist Application or Specialist Advanced level subject in General Insurance from Institute of Actuaries of India or from any other institute or body with which IAI has Mutual Recognition Agreement, the experience criteria including post fellowship experience criterion as mentioned in clause 2(1)(iv)(a) of Part II of Schedule-I of these regulations, shall be reduced by 2 years.
(b) At least 2 years post fellowship experience out of 4 years or 2 years as applicable, as specified under clause 2(1)(iv)(a) of Part II of Schedule-I of these regulations shall be in the preparation or review of annual statutory valuation or product pricing of an Indian General insurer or Indian reinsurer or Foreign Reinsurer’s Branch established in India.
Notwithstanding the above, experience in the area of General Insurance as a Peer Reviewer or Panel Actuary or Actuary certifying reinsurance returns for General reinsurance business or experience in actuarial consultancy in General Insurance business or relevant experience with the Authority shall also be considered.
(c) At least 3 years of experience shall be in the role of middle or senior level management.
(v) A Fellow Member of the Institute of Actuaries of India (IAI), satisfying the following requirements in case of a Health insurer:
(a) At least 9 years of experience in the area of General or Health Insurance and out of which at least 4 years shall be post fellowship experience.
Provided that, if the applicant has passed the Specialist Application or Specialist Advanced level subject in General or Health Insurance from Institute of Actuaries of India or from any other institute or body with which IAI has Mutual Recognition Agreement, the experience criteria including post fellowship experience criterion as mentioned in clause 2(1)(v)(a) of Part II of Schedule-I of these regulations, shall be reduced by 2 years.
(b) At least 2 years post fellowship experience out of 4 years or 2 years as applicable, as specified under clause 2(1)(v)(a) of Part II of Schedule-I of these regulations shall be in the preparation or review of annual statutory valuation or product pricing of an Indian General or Health insurer or Indian reinsurer or Foreign Reinsurer’s Branch established in India.
Notwithstanding the above, experience in the area of General or Health Insurance as a Peer Reviewer or Panel Actuary or Actuary certifying reinsurance returns for General or Health reinsurance business or experience in actuarial consultancy in General or Health insurance business or relevant experience with the Authority shall also be considered.
(c) At least 3 years of experience shall be in the role of middle or senior level management.
(vi) An employee of the insurer on full time basis;
(vii) A person who has not committed any professional or other misconduct;
(viii) Not an Appointed Actuary of any other insurer in India;
(ix) A person who possesses a Certificate of Practice issued by the Institute of Actuaries of India;
(x) Not over the age of 70 years.
(2) Provision for existing Appointed Actuaries as on date of notification of these regulations:
The existing Appointed Actuaries as on the date of notification of these regulations are eligible to continue as Appointed Actuary of the respective insurer.
(3) An insurer shall seek the approval of the Competent Authority for the appointment of Appointed Actuary, submitting the application in the format as may be specified from time to time.
(4) The Competent Authority shall, within thirty days from the date of receipt of application, either accept or reject the same.
Provided that before rejecting the application, the Competent Authority shall give an opportunity of being heard to the insurer.
(5) An insurer, who is unable to appoint an Appointed Actuary in accordance with clause 2(1) of Part II of Schedule-I of these regulations, shall make an application to the Competent Authority in writing for relaxation of any of the eligibility conditions. The Competent Authority may grant relaxation of one or more conditions. However, there shall be no relaxation in respect of conditions under clause 2(1)(ii), 2(1)(vii) & 2(1)(ix) of Part II of Schedule-I of these regulation.
(6) The appointment of an Appointed Actuary shall take effect on or after the date of approval by the Competent Authority.
3. Effect of rejection of the application
The insurer shall, within four weeks of rejection of the application referred to under clause 2(5) of Part II of Schedule-I of of these regulations, apply to the Competent Authority under clause 2(4) of Part II of Schedule-I of these regulations for the appointment of an actuary as an Appointed Actuary other than the one rejected by it under clause 2(5) of Part II of Schedule-I of these regulations.
4. Carrying on business without Appointed Actuary
(1) No insurer shall carry on the business of insurance/reinsurance without an Appointed Actuary. Any noncompliance in this regard shall attract appropriate actions under the relevant provisions of the Act.
(2) The Competent Authority, on request of the insurer for relaxation of the provisions under clause 4(1) of Part II of Schedule-I of these regulations, may grant relaxation for such period (not exceeding one year), as it may deem appropriate.
(3) The Competent Authority may issue circular(s) from time to time regarding the transitory provisions for consideration of relaxation referred under clause 4(2) of Part II of Schedule-I of these regulations.
5. Cessation of Appointment as Appointed Actuary
(1) An Appointed Actuary shall be given a notice of withdrawal of approval by the Competent Authority on the following grounds:
(i) that he or she ceases to be eligible in accordance with clause 2(1) of Part II of Schedule-I of these regulations, or
(ii) that he or she has, in the opinion of the Competent Authority, failed to perform adequately and properly the duties and obligations of an Appointed Actuary under these regulations.
(2) The Competent Authority after serving a notice to such Appointed Actuary shall grant an opportunity of being heard and thereafter issue appropriate order either withdrawing approval or revocation of the notice issued.
(3) If the Appointed Actuary makes formal intimation to the insurer to cease to be an Appointed Actuary of the insurer otherwise than on the grounds mentioned in clause 5(1) of Part II of Schedule-I of these regulations, the insurer and the Appointed Actuary shall intimate the Competent Authority the reasons thereof within one week of the date of such intimation to the insurer.
(4) The insurer in consultation with Appointed Actuary shall endeavour to avoid delay in submission of annual statutory returns arising from cessation of services of Appointed Actuary.
6. Powers of Appointed Actuary
(1) An Appointed Actuary shall have access to all such information and documents in possession or under control, of the insurer if the same access is necessary for the proper and effective performance of the functions and duties of the Appointed Actuary.
(2) The Appointed Actuary may seek any information for the purpose of clause 6(1) of Part II of Schedule-I of these regulations from any officer or employee of the insurer.
(3) The Appointed Actuary shall be entitled to attend, speak and discuss on any matter in meetings of the management including directors meeting of the insurer and in meetings of the shareholders or the policyholders of the insurer:
(i) that relates to the actuarial advice given to the directors;
(ii) that may affect the solvency of the insurer;
(iii) that may affect the ability of the insurer to meet the reasonable expectations of policyholders; or
(iv) on which actuarial advice is necessary.
(4) An Appointed Actuary shall be entitled to make any statement to insurer, for the purpose of the performance of his or her functions as Appointed Actuary. This is in addition to any other privilege conferred upon an Appointed Actuary under any other regulations.
(5) No provision of the letter of appointment of the Appointed Actuary, shall restrict or prevent his or her duties, obligations and privileges under these regulations.
7. Duties and obligations of Appointed Actuary
In particular, and without prejudice to the generality of the foregoing matters, and in the interests of the insurance industry and the policyholders, the duties and obligations of an Appointed Actuary of an insurer shall include:
(1) Ensuring that all the requisite records have been made available to him or her for the purpose of conducting actuarial valuation of liabilities and assets of the insurer;
(2) Rendering actuarial advice to the management of the insurer, in particular in the areas of product design and pricing, insurance contract wording, investments and reinsurance;
(3) Identifying and monitoring the risks associated with the insurer’s ability to maintain the solvency at all times and reporting those risks to the Board of the insurer where the Appointed Actuary believes that there are material concerns which may adversely affect the solvency of the insurer with recommendations on actions to be taken for rectification of solvency position and informing the Competent Authority, if the insurer fails to take necessary steps to rectify the situation;
(4) Complying with the provisions of the section 64V of the Act in regard to certification of the assets and liabilities that have been valued in the manner required under the said section;
(5) Complying with the provisions of the section 64 VA of the Act in regard to maintenance of required control level of solvency margin in the manner required under the said section;
(6) Drawing the attention of management of the insurer, to any matter on which he or she thinks that action is required to be taken by the insurer to avoid any contravention of the Act of such a nature that it may affect the interests of the policyholders;
(7) Complying with the Authority’s directions from time to time;
(8) Ensuring that overall pricing policy of the insurer is in line with the overall underwriting and claims management policy of the insurer;
(9) Ensuring adequacy of reinsurance arrangements;
(10) Contributing to the effective implementation of the risk management system;
(11) Complying with the provisions of section 21 of the Act in regard to further information required by the Authority;
(12) In addition to the above, the duties of an Appointed Actuary of an insurer carrying on life insurance business shall include:
(i) Certifying the actuarial report and abstract and other returns as required under section 13 of the Act;
(ii) Complying with the provisions of the section 112 of the Act with regard to recommendation of interim bonus or bonuses payable by life insurer to policyholders whose policies mature for payment by reason of death or otherwise during the inter-valuation period;
(iii) Rendering actuarial advice in respect of expenses of management of the insurer;
(iv) Ensuring that the premium rates of the insurance products are fair;
(v) Certifying that the mathematical reserves have been determined in the manner prescribed in Part III of Schedule-I of these regulations and taking into account the Guidance Notes /Actuarial Practice Standard issued by the Institute of Actuaries of India and any directions given by the Authority;
(vi) Ensuring that the policyholders’ reasonable expectations have been considered in the matter of valuation of liabilities and distribution of surplus to the participating policyholders who are entitled for a share of surplus;
(vii) Submitting the actuarial advice in the interests of the insurance industry and the policyholders;
(viii) Coordinating the calculation of mathematical reserves;
(ix) Ensuring the appropriateness of the methodologies and underlying models used, as well as the assumptions made in the calculation of mathematical reserves;
(x) Assessing the sufficiency and quality of the data used in the calculation of mathematical reserves;
(xi) Informing the Board of insurer about the reliability and adequacy of mathematical reserves;
(13) In addition to sub clause (1) to (11) of clause 7 of Part-II of Schedule-I of these regulations, the duties of the Appointed Actuary of the insurer carrying on general insurance business or health insurance business include:
(i) Ensuring that the premium rates of the insurance products are fair;
(ii) Certifying that claims reserves including reserves for incurred but not reported claims (IBNR) and other reserves (including reserves for incurred but not enough reported claims (IBNER) and premium deficiency reserve (PDR)) have been determined using actuarial principles and in the manner prescribed in Part IV of Schedule-I of these regulations;
(iii) Rendering actuarial advice in respect of expenses of management of the insurer;
(iv) Coordinating the calculation of reserves for IBNR and other reserves (including reserves for IBNER and PDR);
(v) Assessing the sufficiency and quality of the data used in the calculation of reserves for IBNR and other reserves including reserves for IBNER and PDR;
(vi) Informing the Board of insurer about the reliability and adequacy of reserves for IBNR and other reserves including reserves for IBNER and PDR;
(14) informing the Competent Authority in writing of his or her opinion, within a reasonable time,
(i) any contravention of the Act or any other Acts by the insurer is of such a nature that it may affect significantly the interests of the Policyholders or beneficiaries of policies issued by the insurer;
(ii) whether the directors of the insurer have failed to take such action as is reasonably necessary to enable him or her to exercise his or her duties and obligations under these regulations; or
(iii) whether an officer or employee of the insurer has engaged in conduct in order to prevent him or her exercising his or her duties and obligations under these regulations.
(15) If an Appointed Actuary is disqualified to act as an Actuary, he or she ceases to exist as Appointed Actuary forthwith;
(16) While carrying out his or her duties and obligations, the Appointed Actuary shall pay due regard to generally accepted actuarial principles and practices;
(17) The Appointed Actuary shall inform the Competent Authority of any disciplinary proceedings initiated against him or her by any entity within seven days from the date of such initiation.
8. Conflict of interest
(1) The Appointed Actuary shall function in accordance with these regulations, and he or she shall not function in any other capacity which could result in conflict of interest in performing his or her role as Appointed Actuary in accordance with these regulations.
(2) The insurer and the Appointed Actuary shall comply with the provisions of clause 8(1) of Part II of Schedule-I of these regulations above at all times during his or her tenure as Appointed Actuary.
9. Obligations of the insurer
(1) The insurer shall provide adequate resources to the Appointed Actuary.
(2) In order to build up or develop sufficient actuarial expertise, life insurers shall have at least two actuaries and general/standalone health insurers shall have at least one actuary in addition to Appointed Actuary for pricing and valuation purposes within such period as may be notified by the Competent Authority from time to time.
(3) The insurer shall ensure that different functions of the insurer provide adequate support to the Appointed Actuary in discharging his or her duties and obligations.
(4) The insurer shall ensure that the Appointed Actuary does not simultaneously perform the role of Chief Risk Officer of the insurer. The Chief Risk Officer, however may preferably be an Actuary independent of the Appointed Actuary.
(5) The insurer shall ensure that the Appointed Actuary reports directly to Chief Executive Officer of the insurer.
10. Applicability to reinsurance business
Part II of Schedule- I of these regulations shall apply to Indian reinsurers. The norms applicable in respect of FRBs shall be as specified by the Competent Authority.
Part III: Valuation of Life Insurance Business
1. Applicability
This part of regulations shall be applicable to all the life insurers.
(A) Assets, Liabilities and Solvency Margin
1. Valuation of Assets
All assets of a life insurer shall be valued in accordance with Schedule- II – Finance functions of these regulations, other applicable Regulations, including IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Insurers) Regulations, 2024 and applicable extant norms, except the following assets which shall be placed with value zero for solvency margin computation:
(1) Agents’ and Intermediaries’ balances and outstanding premiums in India, to the extent they are not realised within a period of thirty days;
(2) Agents’ and Intermediaries’ balances and outstanding premiums outside India, to the extent they are not realisable;
(3) Sundry debts, to the extent they are not realisable;
(4) Advances and receivables of an unrealisable character;
(5) Loans and advances as per Schedule – IV of these regulations;
(6) Furniture, fixtures, dead stock and stationery;
(7) Deferred expenses;
(8) Debit balance of Profit and loss appropriation account balance and any fictitious assets other than prepaid expenses;
(9) Reinsurer’s balances outstanding for more than one hundred and twenty days;
(10) Leasehold improvements;
(11) Goods and Services Tax (GST) unutilized credit outstanding for more than one hundred and twenty days;
(12) Seventy-five percent of the ‘Deferred Tax Asset’ other than that arising on account of “Accumulated losses”;
(13) ‘Deferred Tax Asset’ arising on account of “Accumulated losses”;
(14) Investments representing unclaimed amounts and investment income accrued or earned thereon;
(15) Any other assets to the extent not realisable.
2. Determination of Amount of Liabilities
Every insurer transacting life insurance business shall value the amount of liabilities in the manner as set out below:
(1) Mathematical Reserves shall be determined for each contract by a prospective method of valuation in accordance with sub clause (2) to (4) of clause 2 of Part III (A) of Schedule- I of these regulations.
(2) The valuation method shall take into account all prospective contingencies under which any premiums (by the policyholder) or benefits (to the policyholder/beneficiary) may be payable under the policy, as determined by the policy conditions. The level of benefits shall take into account the reasonable expectations of policyholders (with regard to bonuses, including terminal bonuses, if any) and any established practices of an insurer for payment of benefits.
(3) The valuation method shall take into account the cost of any options and guarantees that may be available to the policyholder under the terms of the contract.
(4) The determination of the amount of liability under each policy shall be based on prudent assumptions of all relevant parameters. The value of each such parameter shall be based on the insurer’s expected experience and shall include an appropriate margin for adverse deviations (hereinafter referred to as MAD) that shall not result in decrease in the amount of mathematical reserves.
(5) Treatment of negative reserves and surrender value deficiency reserves:
(i) The amount of mathematical reserve in respect of a policy, determined in accordance with sub – para (4), may be negative (called “negative reserves”) or less than the surrender value available (called “surrender value deficiency reserves”) at the valuation date. The surrender value for this purpose shall be higher of special surrender value and guaranteed surrender value.
(ii) The Appointed Actuary shall, for the purpose of section 35 of the Act, use the amount of such mathematical reserves without any modification;
(iii) The Appointed Actuary shall, for the purpose of sections 13, 49, 64V and 64VA of the Act, set the amount of such mathematical reserve to zero, in case of such negative reserve, or to the surrender value, in case of such surrender value deficiency reserves, as the case may be.
(6) The valuation method shall be “Gross Premium Valuation” except for the following cases:
(i) One-year renewable group term assurances including riders attached to group business wherein Reserves shall allow for Unearned Premium, Premium deficiency and Incurred But Not Reported claims.
(ii) Riders attached to individual products wherein the reserve shall be higher of Gross Premium Valuation Reserve and Unearned Premium Reserve.
(7) For individual business, the Appointed Actuary may hold additional reserve in respect of Incurred But Not Reported claims.
(8) If in the opinion of the Appointed Actuary, a method of valuation other than the Gross Premium Method of valuation is to be adopted, then, other approximation methods (e.g. retrospective method) may be used.
Provided that the amount of calculated reserve is expected to be at least equal to the amount that shall be produced by application of Gross Premium Valuation method.
(9) The method of calculation of the amount of liabilities and the assumptions for the valuation parameters shall not be subject to arbitrary discontinuities from one year to the next.
3. Policy Cash Flows: The gross premium method of valuation shall discount the following future policy cash flows at an appropriate rate of interest,
(1) Premiums payable, if any,
(2) Benefits payable, if any, on death, survival, maturity, voluntary termination of contract or any other contingencies covered under the policy
(3) Bonuses that have already been vested as at the valuation date if any,
(4) Bonuses as a result of the valuation at the valuation date if any
(5) Future bonuses if any (one year after valuation date) including terminal bonuses
(6) Any other benefits as applicable
(7) Commission and remuneration payable, if any, in respect of a policy (this shall be based on current practice of the insurer). No allowance shall be made for non-payment of commission in respect of orphaned policies
(8) Policy maintenance expenses, if any, in respect of a policy;
(9) Allocation of profit to shareholders, if any, where there is a specified relationship between profits attributable to shareholders and the bonus rates declared for policyholders
Provided that allowance must be made for tax, if any.
(10) Any other cash flow as applicable
4. Policy Options and Guarantees:
Where a policy provides built-in options that may be exercised by the policyholder, such as conversion or addition of coverage at future date(s) without any evidence of good health, or guarantees, such as annuity rate guarantees at maturity of contract, investment guarantees etc., the costs of such options or guarantees shall be estimated and treated as special cash flows in calculating the mathematical reserves.
5. Valuation Parameters:
(1) The valuation parameters shall constitute the bases on which the future policy cash flows shall be computed and discounted. Each parameter shall be appropriate to the block of business to be valued. The Appointed Actuary shall take into consideration the following:
(i) The value(s) of the parameter shall be based on the insurer’s experience study, where available. If reliable experience study is not available, the value(s) can be based on the industry study, if available and appropriate. If neither is available, the values may be based on the bases used for pricing the product. In establishing the expected level of any parameter, any likely deterioration in the experience shall be taken into account;
(ii) The expected level, as determined in sub clause 1(i) of clause 5 of Part III of Schedule-I of these regulations, shall be adjusted by an appropriate Margin for Adverse Deviations (MAD), the level of MAD being dependent on the degree of confidence in the expected level, and such MAD in each parameter shall be based on the Actuarial Practice Standards / Guidance Notes issued by the Institute of Actuaries of India, with the concurrence of the Authority;
(iii) The values used for the various valuation parameters should be consistent among themselves.
(2) Mortality rates to be used shall be by reference to a published table, unless the insurer has constructed a separate table based on its own experience:
Provided that such published table shall be made available to the insurance industry by the Institute of Actuaries of India, with the concurrence of the Authority.
Provided further that such rates determined by reference to a published table shall not be less than one hundred percent of that published table.
Provided further that such rates determined by reference to the published table may be less than one hundred percent of that published table if the Appointed Actuary can justify a lower percent.
(3) Morbidity rates to be used shall be by reference to a published table, unless the insurer has constructed a separate table based on its own experience:
Provided that such published table shall be made available to the insurance industry by the Institute of Actuaries of India, with the concurrence of the Authority:
Provided further that such rates determined by reference to a published table shall not be less than one hundred percent of that published table.
Provided further that such rates determined by reference to the published table may be less than one hundred percent of that published table if the Appointed Actuary can justify a lower percent.
(4) Policy maintenance expenses shall have regard to the actual expense experience of the insurer. All expenses shall be increased in future years for inflation; the rate of inflation assumed should be consistent with the valuation rate of interest.
Provided that appropriate additional provisions shall be made if the actual experience has not been considered for the valuation.
Provided further that the above provision shall not be applicable to the life insurance companies for the first five years from the date of commencement of the business.
(5) Valuation rate of interest:
(i) The best estimate interest rate shall first be, determined based on the current and expected yields from existing assets attributable to blocks of life insurance business, and the yields which the insurer is expected to obtain from the sums to be invested in the future, and such assessment shall take into account:
(a) the composition of assets supporting the liabilities, expected cash flows from the investments on hand, the cash flows from the block of policies to be valued, the likely future investment conditions and the reinvestment and disinvestment strategy to be employed in dealing with the future net cash flows;
(b) the risks associated with investment in regard to receipt of income on such investment or repayment of principal;
(c) the expenses associated with the investment functions of the insurer;
(ii) such best estimate shall be adjusted by the Margin for Adverse Deviation to arrive at the valuation rate of interest
(iii) Further, the valuation rate of interest,
(a) shall not be higher than the rates of interest, determined from prudent assessment of the yields from existing assets attributable to blocks of life insurance business, and the yields which the insurer is expected to obtain from the sums to be invested in the future;
(b) shall not be higher than, for the calculation of present value of policy cash flows in respect of a particular category of contracts, the yields on assets maintained for the purpose of such category of contacts;
(c) in respect of non-participating business, shall recognize the risk of decline in the future interest rates;
(d) in respect of participating business, shall be based on the assumption (with regard to future investment conditions), that the scale of future bonuses used in the valuation is consistent with the valuation rate of interest.
(6) Lapse rate, if considered for valuation, should be a prudent assumption based on past experience of the product or similar products; and shall have regard to the expected future experience based on the nature of the products, target market, distribution channel etc.
(7) Other parameters may be taken into account, depending on the type of policy. In establishing the values of such parameters, the considerations set out in Part III-A of this Schedule shall be taken into account.
(8) Reinsurance arrangement with an element of borrowing in the form of deposit or credit of any kind from insurer’s reinsurers without the prior approval of the Competent Authority shall not be treated as credit for reinsurance for the purpose of determination of required solvency margin.
(9) In case the mathematical reserve is calculated allowing for outgo in respect of reinsurance premium and credit taken for claim recoveries from reinsurer, the valuation basis and methods shall be as per the Part III of Schedule- I of these regulations.
6. Additional Requirements for Linked Insurance Business:
(1) Reserves in respect of linked business shall consist of two components, namely, unit reserves or policy account value and general fund reserves.
(2) Unit reserves or policy account value shall be calculated in respect of the units or policy account value allocated to the policies in force at the valuation date using unit values or policy account value if applicable, at the valuation date.
(3) General fund reserves shall be determined using discounted cash flow method, which shall take into account of the following, namely:
(i) premiums, if any, payable in future;
(ii) death benefits, if any, provided by the general fund reserve (over and above the value of units or the policy account value);
(iii) charges paid to the general fund;
(iv) guarantees, if any, relating to surrender values or minimum death and maturity benefits;
(v) fund growth rates and fund management charges. (The values of these parameters, along with others, shall be determined in accordance with clause 5(5) of Part III (A) of Schedule- I of these regulations);
(vi) non-negative residual additions, if any,
(vii) other future cash flow, if any,
(viii) any future negative cash flow shall be appropriately provided for by setting up reserves;
(4) General fund reserve under linked policies calculated as above, if negative, shall be set to zero.
(5) The general fund reserves shall be considered as reserve for non-linked non-participating business for the purpose of investment norms, distribution of surplus etc.
7. Additional Requirements for Variable Linked Business:
(1) Reserve in respect of variable linked business shall consist of two components, namely, policy account reserves and general fund reserves.
(2) Policy account reserves shall be the balance in Policy Account on the date of valuation.
(3) General fund reserves shall be determined using discounted cash flow method, which shall take into account the following, namely:
(i) premiums, if any, payable in future;
(ii) death benefits, if any, provided by the general fund (over and above the value of policy account);
(iii) charges paid to the general fund;
(iv) guarantees, if any, relating to surrender values or minimum death and maturity benefits;
(vi) policy account growth rates and fund management charges. (The values of these parameters, along with others, shall be determined in accordance with clause 5(5) of Part III (A) of Schedule- I of these regulations);
(vii) non-negative residual additions, if any;
(viii) other future cash flow, if any,
(ix) any future negative cash flow shall be appropriately provided for by setting up reserves;
(4) General fund reserves under variable linked policies calculated as above, if negative, shall be set to zero.
(5) The general fund reserves shall be considered as reserve for non-linked non-participating business for the purpose of investment norms, distribution of surplus etc.
8. Additional Requirements for Variable Non-Linked Business (Par and Non-Par):
(1) Reserve in respect of variable non-linked business shall consist of two components, namely, policy account reserves and general fund reserves.
(2) Policy account reserves shall be the balance in Policy Account on the date of valuation.
(3) General fund reserves shall be determined using discounted cash flow method, which shall take into account of the following, namely:
(i) premiums, if any, payable in future;
(ii) death benefits, if any, provided by the general fund (over and above the value of Policy account);
(iii) charges paid to the general fund;
(iv) guarantees, if any, relating to surrender values or minimum death and maturity benefits;
(v) policy account growth rates and fund management charges. (The values of these parameters, along with others, shall be determined in accordance with clause 5(5) of Part III (A) of Schedule- I of these regulations);
(vi) non-negative residual additions, if any,
(vii) other future cash flow, if any,
(viii) any future negative cash flow shall be appropriately provided for by setting up reserves;
(ix) future bonuses (one year after valuation date) including terminal bonuses (consistent with the valuation rate of interest)
(x) allocation of profit to shareholders, if any, where there is a specified relationship between profits attributable to shareholders and the bonus rates declared for policyholders.
Provided that allowance must be made for tax, if any
(4) General fund reserves under variable non-linked policies calculated as above, if negative, shall be set to zero.
(5) The general fund reserves under variable non-linked non-participating business shall be considered as reserve for non-linked non-participating business for the purpose of investment norms, distribution of surplus etc.
(6) The general fund reserves under variable non-linked participating business shall be considered as reserve for non-linked participating business for the purpose of investment norms, distribution of surplus etc.
9. Requirements for Additional Provisions:
The Appointed Actuary shall make aggregate provisions in respect of the following, where it is not possible to factor while calculating mathematical reserves for each policy, in the determination of mathematical reserves:
(1) Policies in respect of which extra premiums have been charged on account of underwriting of substandard lives that are subject to extra risks such as occupation hazard, over-weight, underweight, smoking history, health, climatic or geographical conditions;
(2) Lapsed policies not included in the valuation but under which a liability exists or may arise;
(3) Reduced paid-up policies where there is a possibility of revival resulting in additional reserves;
(4) Options available under individual and group insurance policies;
(5) Guarantees available to individual and group insurance policies;
(6) The rates of exchange at which benefits in respect of policies issued in foreign currencies have been converted into Indian Rupees and what provisions have been made for possible increase of mathematical reserves arising from future variations in rates of exchange;
(7) Pandemic events, if any;
(8) Others, if any.
10. Solvency Margin
(1) Every life insurer shall determine the Required Solvency Margin, the Available Solvency Margin, and the Solvency Ratio as per the Forms KT-1, KT-2 and KT-3 as specified under Annexure Actl-6 to Annexure Actl-8 of these regulations.
(2) The control level of solvency margin shall be one hundred and fifty percent of Required Solvency Margin for the purpose of sub-section 3 of Section 64 VA of Insurance Act,1938.
(3) Every life insurer shall at all times maintain solvency margin not below the control level of solvency margin.
11. Health Insurance Business
Where the Life insurer transacts health insurance business providing health covers, the amount of liabilities shall be determined in accordance with the principles specified under these regulations.
12. Business outside India
Where the Life insurer transacts life insurance business in a country outside India as a branch of the insurer and submits statements or returns or any such particulars to the host regulator, the insurer shall enclose the same along with the forms as specified in Part III (B) of Schedule-I of these regulations.
Provided that if Appointed Actuary is of the opinion that the liability and solvency norms outside India where the insurer transacts business, results in lower liability and/or solvency requirement as compared to the liability and solvency norms existing in India , then such person shall require the insurer to set aside additional reserves over and above the reserves shown in the statements or returns or any such particulars submitted to the host regulator of a country outside India so as to comply with the liability and solvency norms existing in India.
13. Furnishing of Statements
Statements of Assets, Liabilities and Solvency Margin shall be furnished in forms as specified under Part III (B) of Schedule-I of these regulations and shall be furnished separately for life insurance business within India and total business transacted by the insurer.
(B) Report and Abstract for Life Insurance Business as stipulated under the Section 13 of the Act.
1. Procedure for Preparation of Actuarial Report and Abstract.
(1) The abstracts and statements must be so arranged that the number and letters of the paragraphs correspond with clause 2 of Part III(B) of Schedule-I of these regulations.
(2) The Abstracts and Statements shall be furnished to the Competent Authority, within three months from the end of the period to which they refer to or within thirty days from the date of adoption of accounts by the Board, whichever is earlier.
(3) There shall be appended to every such abstract and statement:
(i) Certificate signed by the Chief Executive Officer (CEO) that full and accurate particulars of every policy under which there is a liability, either actual or contingent, has been furnished to the Appointed Actuary for the investigation; however, exceptions if any, may be brought out along with action being taken to rectify the deficiency in the valuation data.
(ii) Certificate signed by the Appointed Actuary with his remarks, if any, to the effect that:
(a) the data furnished by the CEO has been included in conducting the valuation of liabilities for the purpose of the investigation;
(b) the provisions of the Act are complied with;
(c) the Actuarial Practice Standards issued by Institute of Actuaries of India with the concurrence of the Authority are complied with;
(d) reasonable steps have been taken to ensure the accuracy and completeness of data (if any data deficiency is observed this may be highlighted).
(e) in the opinion of the Appointed Actuary, the mathematical reserves are adequate to meet insurer’s future commitments under the contracts, and the policyholders’ reasonable expectations.
2. Requirements Applicable to Abstract and Statements
(1) Abstracts and statements shall be prepared separately in respect of
(i) Participating; and
(ii) Non – Participating business
(2) Every insurer shall append the following statements in the form specified in Annexure Actl-1 to Annexure Actl- 9 to the abstract prepared in accordance with these regulations:
(i) Statement of Liabilities – Form H, Form NLB, Form LB, Form VIPNLB and Form VIPLB
(ii) Form IA NPAR (In respect of Non-Participating Business)
(iii) Form IA PAR (In respect of Participating Business)
(iv) Valuation balance Sheet – Form I
(v) Statement of Assets – Form AA
(vi) Form KT-1
(vii) Form KT-2
(viii) Statement of Available Solvency Margin and Solvency Ratio – Form KT-3
(ix) Composition and Distribution of Surplus – Form S
(3) Every insurer shall also submit the following along with above statements:
(i) With Profit Committee Report
(ii) Any other forms as prescribed by the Competent Authority from time to time
(iii) Detailed information regarding the above statements may be obtained in the formats as specified by the Competent Authority.
(4) Each Abstract shall show:
(i) The Valuation Date – The date on which valuation (investigation) is done;
(ii) Products – A list of all products/riders included in the valuation along with their respective UIN;
(iii) Foreign Operations – A brief description of the foreign operations of the insurer, during the inter-valuation period;
(iv) Valuation data – The Appointed Actuary shall comment on the steps taken to verify consistency, completeness and accuracy of data provided by the CEO.
(v) Valuation Method – A brief description of:
(a) the methods adopted in the determination of mathematical reserves in respect of insurance products;
(b) the method by which age at entry, premium term, maturity date, valuation age, period from the valuation date to the maturity date, have been treated for the purpose of valuation;
(c) the manner in which reinsurance has been taken into account in arriving at the valuation reserves net of reinsurance
(d) the method of allowing for:
(1) Incidence of premium income; and
(2) Premiums payable otherwise than annually;
(e) valuation methodology for various options and guarantees:
(1) Provide the details of various options that are provided under various products included in investigation.
(2) Summarize the methods used to make suitable provisions for these options, wherever explicitly provided.
(3) Provide the details of various guarantees that are offered under various products included in investigation.
(4) Summarize the methods used to make provisions for these guarantees, wherever explicitly provided.
(vi) Other Adjustments (Provisions):
The methods by which provisions, if any, have been made for the following matters, along with a statement of bases as part of Valuation bases, wherever necessary:
(a) Policies in respect of which extra premiums have been charged on account of underwriting of under-average lives that are subject to extra risks such as occupation hazard, over-weight, under-weight, smoking history, health, climatic or geographical conditions;
(b) Lapsed policies not included in the valuation but under which a liability exists or may arise;
(c) Reduced paid-up policies where there is possibility of revival resulting in additional reserves;
(d) Options available under individual and group insurance policies
(e) Guarantees available to individual and group insurance policies
(f) The rates of exchange at which benefits in respect of policies issued in foreign currencies have been converted into Indian Rupees and what provision has been made for possible increase of mathematical reserves arising from future variations in rates of exchange;
(g) Pandemic events, if any;
(h) Others, if any.
(vii) Valuation bases:
Valuation parameters used in the valuation shall be furnished separately for best estimate, margin for adverse deviation and valuation assumptions in the manner as specified in the table hereunder:
| Description | Morta-lity basis used | Morbi-dity basis used | Infla-tion rate | Interest Rate | Expe-nses | Lapse/ Surren-der, if any | Future bonuses, if any |
Others, please specify |
Rema-rks |
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | (10) |
| (a) Insurance Product:(i) Regular Premium(ii) Single premium and Fully paid up(iii) Reduced Paid up(b) Insurance Product:(i) Regular Premium(ii) Single premium and Fully paid up(iii) Reduced Paid up |
Notes:
a. Summarize the Margins for Adverse Deviations for these parameters.
b. Provide the basis for arriving at the valuation parameters along with experience, if any
c. Summarize and justify any material changes made to the assumptions during the inter-valuation period along with the impact.
d. Specify separately the expenses related to premiums, sum assured, annuity, etc., and per policy under Column (6) of the table;
e. Specify items such as terminal bonus in respect of with profit contracts and management charges, unit growth rate, policy account growth rate etc. in respect of linked business under Column (9) of the table;
f. Include items related to Other Provisions, if any, as part of Column (9)
3. Negative Reserves and Guaranteed Surrender Value Deficiency Reserves:
A brief description of treatment adopted for negative reserves and guaranteed surrender value deficiency reserves shall be furnished.
4. Return on Assets:
The yield on investment will be the investment income as a percentage of the mean fund over the period, on assets attributable to blocks of business / segments etc. The value of the assets for this purpose shall be the adjusted values of assets using the asset valuation method prescribed in Part III (A) of Schedule-I of these regulations. The mean fund would be assessed considering the amount and incidence of cash-flow to the fund.
5. Distribution of surplus:
The basis adopted in the distribution of surplus as between the shareholders and the policyholders, and whether such distribution was determined by the instruments constituting the Insurer or by its regulations or by-laws or how otherwise shall be mentioned.
6. Principles adopted in distribution of surplus:
The general principles adopted in distribution of surplus among policyholders, including statements on following points, shall be furnished:
(1) Whether the principles were determined by instruments constituting the insurer, or by its regulations or by-laws or otherwise;
(2) The number of years premium to be paid, period to elapse and other conditions to be fulfilled before a bonus is allotted;
(3) Whether the bonus is allocated in respect of each year’s premium paid, or in respect of each calendar year or year of assurance or otherwise; and
(4) Whether the bonus vests immediately on allocation, or, if not, conditions of vesting.
7. Statement of composition of surplus and distribution of surplus in respect of policyholders’ funds.
(1) A Statement of composition of surplus and distribution of surplus in respect of policyholders’ funds, showing total amount of surplus as at the Balance sheet date and the allocation of such surplus, shall be furnished separately for participating business and for non-participating business, with the particulars as mentioned below:
Composition of Surplus:
(i) Surplus emerging during the valuation year;
(ii) Interim Bonuses paid during the inter-valuation period;
(iii) Terminal Bonuses paid during the inter-valuation period;
(iv) Loyalty Additions or other forms of bonuses, if any, paid during the inter-valuation period;
(v) Sum transferred from shareholders’ funds during the inter-valuation period;
(vi) Amount of surplus, from policyholders’ funds, brought forward from preceding valuation;
(vii) Total Surplus (total of the items (i) to (vi)):
Distribution of Surplus:
Policyholders’ Fund:
(i) To Interim Bonuses paid;
(ii) To Terminal Bonuses;
(iii) To Loyalty Additions or any other forms of bonuses, if any;
(iv) Among policyholders with immediate participation giving the number of polices which participated and the sums assured thereunder (excluding bonuses);
(v) Among policyholders with deferred participation, giving the number of polices which participated and the sums assured thereunder (excluding bonuses);
(vi) To every reserve fund or other fund or account (any such sums passed through the accounts during the inter-valuation period to be separately stated);
(vii) As carried forward un-appropriated.
Share-holders’ fund:
(viii) To the shareholders’ funds (any such sums passed through the accounts during the inter valuation period to be separately stated);
Totals:
(ix) Total Surplus allocated: (total of the items (i) to (viii))
(2) Specimen of Bonuses allotted to policies for one thousand rupees of benefit together with the amounts apportioned under the various manners in which the bonus is receivable, for each type of participating product, shall be furnished.
8. Provisions related to submission of Statements:
(1) Statements mentioned under clause 2 of Part III (B) of Schedule-I of these regulations shall have the following description, as applicable: –
(i) Classification
(ii) Type
(iii) Category
(iv) Division
(v) Sub-Class
(vi) Group
(2) There shall be two Classifications, namely, Business Within India and Total Business (consisting of Business within India and Business outside India), with Classification Codes ‘BWI’ and ‘BT’ respectively
(3) There shall be two Types, namely, Participating and Non-Participating with codes ‘PAR’ and ‘NPAR’ respectively under each classification.
(4) There shall be four categories as under each Type namely,
(i) Non-Linked (other than Variable Insurance Products) with Category Code ‘NL’
(ii) Linked (other than Variable Insurance Products) with Category Code ‘L’
(iii) Non-Linked Variable Insurance Products with category code ‘VIP-NL’
(iv) Linked Variable Insurance Products with category code ‘VIP-L’
(5) There shall be two Divisions, namely, Individual Business and Group Business, with Division Codes ‘I’ and ‘G’ respectively under each Category.
(6) There shall be four Sub-Classes, namely, Life Business, Pension Business, General Annuity Business and Health Insurance Business with Sub-Class codes ‘L’,’P’, ‘A’, and ‘HL’
(7) There shall be two Groups, namely, Immediate Participation, Deferred Participation with Group Codes of ‘I-PAR’ and ’D-PAR’ respectively under the Sub Class – Life Business of Individual Division under Participating Type.
(8) There shall be two Groups, namely, Immediate Annuity and Deferred Annuity with Group Codes ‘IA’ and ‘DA’ under the Sub Class of General Annuity Business.
(9) There shall be two Groups, namely, Premiums Guaranteed for not more than one year and Premiums Guaranteed for more than one year with Group Codes of ‘NGP’ and ‘GP’ respectively under Sub Class of Life Business under the Division of Group Business under Non-Linked Category.
(10) There shall be two Groups, namely, With Guarantees and Without Guarantee with Group Codes of ‘WG’ and ‘WOG’ respectively under each of the categories Linked, Non-Linked Variable Insurance Products and Linked Variable Insurance Products.
(11) “Nil” Statements shall be furnished for those forms where the insurer has no transactions.
(12) All figures shall be furnished in thousands and all amounts shall be furnished in Indian Rupees.
(13) In respect of Group Business, ‘the number of policies’ in Forms and Statements, wherever applicable, shall be read as ‘number of schemes’.
(C) Distribution of Surplus by Life Insurance Companies:
1. Requirement to maintain a life insurance fund:
(1) A life insurer registered under section 3 of the Act shall be required to maintain separately:
(i) A life fund for participating policyholders, and
(ii) A life fund for non-participating policyholders.
(2) Non-Compliance with the requirements of clause 1(1) of Part III (C) of Schedule– I of these regulations shall mean that the life fund maintained by the insurer shall be for the benefit of the participating policy holders only.
2. Procedure for distribution of surplus:
A life insurer, may on the advice of his Appointed Actuary, reserve to its shareholders, a part of the actuarial surplus (also referred to as valuation surplus) arising out of a valuation of assets and liabilities made for a financial year in accordance with Part III of these regulations, in the following manner:
(1) one hundred percent, in case of a life fund maintained for non-participating policy-holders;
(2) one-ninth of the surplus allocated to policyholders in case of a life fund maintained for participating policy holders.
Provided that an insurer shall however be required to obtain prior approval of the Authority in cases where the said allocation is not the one-ninth of the surplus.
Provided further that an insurer shall not allocate or reserve exceeding ten percent, of the said actuarial surplus to its shareholders.
Part IV: Valuation of General Insurance Business:
1. Applicability:
This part of regulations shall be applicable to all the general insurers and standalone health insurers.
2. Assets, Liabilities and Solvency Margin:
1. Valuation of Assets:
All assets of a general insurer or a standalone health insurer shall be valued in accordance with Schedule- II – Finance functions of these regulations, other applicable regulations, including IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Insurers) Regulations, 2024 and applicable extant norms, except the following assets which shall be placed with value zero for solvency margin computation:
(i) Agents’ and Intermediaries’ balances and outstanding premiums in India, to the extent they are not realized within a period of thirty days;
(ii) Premiums receivables relating to State/Central government sponsored schemes, to the extent they are not realized within a period of 365 days;
(iii) Agents’ and Intermediaries’ balances and outstanding premiums outside India, to the extent they are not realizable;
(iv) Sundry debts, to the extent they are not realizable;
(v) Advances and receivables of an unrealizable character;
(vi) Loans and advances as per Schedule – IV of these regulations;
(vii) Furniture, fixtures, dead stock and stationery;
(viii) Deferred expenses;
(ix) Debit balance of Profit and loss appropriation account balance and any fictitious assets other than pre-paid expenses;
(x) Co-insurer’s balances outstanding for more than ninety days;
(xi) Balances of Indian Reinsurers and Foreign Reinsurers having Branches in India outstanding for more than 365 days;
(xii) Reinsurer’s balances other than mentioned in point (xi) above outstanding for more than 180 days;
(xiii) Leasehold improvements;
(xiv) Goods and Services Tax (GST) Unutilized Credit outstanding for more than 120 days;
(xv) Seventy-five percent of the ‘Deferred Tax Asset’ other than that arising on account of “Accumulated losses”;
(xvi) ‘Deferred Tax Asset’ arising on account of “Accumulated losses”;
(xvii) Investments representing unclaimed amounts and investment income accrued or earned thereon;
(xviii) Any other assets to the extent not realisable.
2. Determination of Amount of Liabilities
The amount of technical liabilities shall be determined on the Valuation Date separately for each line of business and shall be the sum total of Unexpired Risk Reserves and Claims Reserves. The Appointed Actuary shall ensure the reserves estimated are adequate to meet the liabilities.
(i) Unexpired Risk Reserves (URR):
The URR shall be calculated using sound actuarial principles and shall comprise of the following:
(a) Unearned Premium Reserve (UPR):
A reserve for unearned premium shall be provided as the amount representing that part of the premium written which is attributable to, and allocated to the succeeding accounting periods. UPR will be estimated as per the clause 4 of Part II of Schedule- II of these regulations and shall be certified by the Chief Financial Officer and the Statutory Auditor.
(b) Premium Deficiency Reserve (PDR):
The PDR shall be calculated using sound actuarial principles. Though the PDR shall be maintained at the insurer level, PDR on segmental basis would be monitored for assessing the sustainability of products and maintaining at lines of business level. PDR as maintained at the insurer level shall be subject to minimum of zero value.
Premium deficiency shall be recognized if the sum of expected claim costs, expenses and maintenance costs exceeds related unearned premium reserve. Premium deficiency reserve shall be calculated and duly certified by an Appointed Actuary.
(ii) CLAIMS RESERVE
(a) The Claims Reserve shall be determined as the aggregate amount of Outstanding Claims Reserve, Incurred but Not Reported Claims Reserve (IBNR) and Incurred but not Enough Reported (IBNER) claim reserves as described below for the following lines of business. In case of FRB, the claims reserve may be arrived at aggregate level for each of Motor and Heath lines of business if the granular data is not available.
| ITEM NO. | LINE OF BUSINESS |
| MOTOR | |
| 1 | Motor OD – Private car |
| 2 | Motor OD – Two Wheeler |
| 3 | Motor OD – Commercial Vehicle |
| 4 | Motor TP – Private car |
| 5 | Motor TP – Two Wheeler |
| 6 | Motor TP – Commercial Vehicle (Declined Pool) |
| 7 | Motor TP – Commercial Vehicle (TP Pool) |
| 8 | Motor TP – Commercial Vehicle (Other than Pool) |
| HEALTH | |
| 9 | Health Insurance – Individual |
| 10 | Health Insurance – Group-Government Schemes |
| 11 | Health Insurance – Group-Employer/Employee Schemes |
| 12 | Health Insurance – Group-Other Schemes |
| PERSONAL ACCIDENT | |
| 13 | Personal Accident – Individual |
| 14 | Personal Accident – Group (Government Schemes) |
| 15 | Personal Accident – Group (Others) |
| 16 | TRAVEL |
| 17 | FIRE |
| MARINE | |
| 18 | Marine Cargo |
| 19 | Marine – Other than Marine Cargo |
| OTHER MISCELLANEOUS | |
| 20 | Engineering |
| 21 | Aviation |
| 22 | Product Liability |
| 23 | Liability Insurance |
| 24 | Workmen Compensation / Employer’s Liability |
| 25 | Crop Insurance |
| 26 | Weather Insurance |
| 27 | Credit Insurance |
| 28 | Others |
(b) Outstanding Claims Reserve:
The outstanding claims reserve shall be determined in the following manner:
(i) Where the amount of outstanding claims of the insurers is known, the amount is to be provided in full;
(ii) Where the amount of outstanding claims can be reasonably estimated according to the insurer, insurer shall follow the ‘case by case method’ after taking into account the explicit allowance for changes in the settlement pattern or average claim amounts, expenses and inflation;
(iii) For lines of business, where the Appointed Actuary is of the view that the statistical method is most appropriate for the estimation of Outstanding claims, the Appointed Actuary may use the appropriate statistical method of claims reserving instead of following case by case method. In such cases, the claims outstanding reserve shall be certified by Appointed Actuary. Where the Appointed Actuary identifies material changes in the claims handling practices, their impact on the outstanding claims reserve pattern shall be taken into account and reported.
(c) Incurred But Not Reported (IBNR) Claims Reserve:
(i) The incurred but not reported (IBNR) claims reserve shall be determined using appropriate actuarial principles and methods and shall be certified by the Appointed Actuary.
(ii) The Appointed Actuary shall estimate IBNR on both net of reinsurance and gross of reinsurance basis.
(iii) The Appointed Actuary shall estimate the provision for IBNR for each year of occurrence and the figures shall be aggregated to arrive at the total amount to be provided.
(iv)If estimate of IBNR provision for any year of occurrence produces a negative value, the Appointed Actuary shall consider the IBNR provision for that year of occurrence at least zero.
(v) The estimation process shall not discount the estimated future development of claims to the current date.
3. Determination of Other Liabilities:
The general insurer shall place a proper value in respect of the following items, in full:
(i) Provision for bad and doubtful debts; reserve for dividends declared or recommended, and outstanding dividends;
(ii) Amount due to insurance companies carrying on insurance business;
(iii) Amount due to sundry creditors;
(iv) Provision for taxation;
(v) Foreign exchange reserve; and
(vi) Other liabilities, if any.
4. Determination of Solvency Margin:
(i) Every general insurer and standalone health insurer shall determine the Required Solvency Margin, the Available Solvency Margin, and the Solvency Ratio in FORM IRDAI-GI-SM in accordance with Annexure Actl-12.
(ii) Control level of solvency margin:
(a) The control level of solvency margin shall be one hundred and fifty percent of Required Solvency Margin for the purpose of sub-section 3 of Section 64 VA of Insurance Act,1938.
(b) Every general insurer and standalone health insurer shall at all times maintain solvency margin not below the control level of solvency margin.
5. Statements to be Submitted:
(i) Every general insurer and standalone health insurer shall submit a statement of value of admissible assets in FORM IRDAI-GI-TA in accordance with Annexure Actl- 10.
(ii) The amount of Required Solvency Margin shall be determined on the Valuation Date separately for each line of business as listed in the FORM IRDAI-GI-SM. Every general insurer and standalone health insurer shall submit a statement of liabilities in FORM IRDAI-GI-TR in accordance with Annexure Actl-11, certified by the Appointed Actuary, Principal Officer, Statutory Auditor and Chief Financial Officer in accordance with Section 64V of the Act.
(iii) Every general insurer and standalone health insurer shall submit a statement of solvency margin in FORM IRDA-GI-SM in accordance with Annexure Actl- 12.
(iv) The general insurer and standalone health insurer shall furnish any additional information as may be specified by the Competent Authority from time to time.
(v) The Forms as prescribed above, namely, FORM IRDAI-GI-TA, FORM IRDAI-GI-TR and FORM IRDAI-GI-SM shall be furnished separately for General Insurance Business within India and Total Business transacted by the general insurer.
(vi) These Forms shall be furnished to the Competent Authority, within three months from the end of the period to which they refer to or within thirty days from the date of adoption of accounts by the Board of the insurer, whichever is earlier, along with any other reports as may be specified by the Competent Authority from time to time.
6. Business Outside India:
Where the insurer transacts general or health insurance business in a country outside India as a branch of the insurer and submits statements or returns or any such particulars to the host regulator of that country, the insurer shall enclose a copy of the same along with the Forms specified in accordance with these regulations and as may be specified by the Competent Authority from time to time.
Provided that if Appointed Actuary is of the opinion that the liability and solvency norms outside India, where the insurer transacts business, results in lower liability and/or solvency requirement as compared to the liability and solvency norms existing in India, then the Appointed Actuary shall require the insurer to set aside additional reserves over and above the reserves shown in the statements or returns or any such particulars submitted to the host regulator of a country outside India so as to comply with the liability and solvency norms existing in India.
Part V: Applicability to Reinsurers including ‘Foreign Reinsurer’s Branches’ for the purpose of determination of solvency margin:
1. Life Reinsurance business:
(1) The amount of liabilities shall be determined in accordance with the Part III of Schedule- I of these regulations.
(2) The Required Solvency Margin shall be determined in accordance with the Part III of Schedule- I of these regulations.
(3) As regards the business ceded by the insurers, Part III of Schedule- I of these regulations shall be applicable to the net sums at risk retained by the insurer.
(4) Life Reinsurance business includes life and health insurance business ceded by life insurers.
2. General Reinsurance business:
(1) The amount of liabilities shall be determined in accordance with the Part IV of Schedule- I of these regulations;
(2) The Required Solvency Margin shall be determined in accordance with the Part IV of Schedule- I of these regulations
(3) As regards the business ceded by the insurers, Part IV of Schedule I of these regulations shall be applicable to the net sums at risk retained by the insurer.
(4) General Reinsurance business includes general and health insurance business ceded by General and standalone health insurers.
3. Valuation of assets:
(1) The available asset shall be valued at reinsurer level in accordance with Schedule- II – Finance functions of these regulations.
(2) Inadmissible assets shall be valued in accordance with Part III and Part IV of Schedule- I of these regulations as applicable.
4. Control level of solvency margin:
(1) The control level of solvency margin shall be one hundred and fifty percent of Total Required Solvency Margin, where Total Required Solvency Margin is the sum of Required Solvency Margin for Life Reinsurance business and Required Solvency Margin of General Reinsurance Business.
(2) Every reinsurer shall at all times maintain solvency margin not below the control level of solvency margin.
5. Statements to be Submitted:
(1) Statements for Life Reinsurance Business:
(i) Statements of Liabilities (Annexure Actl-1)
(ii) Form KT1(Annexure Actl-6)
(iii) Form KT2(Annexure Actl-7)
(2) Statements for General Reinsurance Business:
(i) Form IRDAI-GI-TR (Annexure Actl-11)
(ii) Table IA of Form IRDAI-GI-SM (Annexure Actl-12)
(3) Combined statements for Life and General Reinsurance business
(i) Statement of Assets – FORM IRDAI-RI-TA (Annexure Actl-13)
(ii) Solvency Form – IRDAI-RI-SM (Annexure Actl-14)
(4) Every reinsurer shall submit the statements as specified above under clause 5(1) to 5(3) of Part V of Schedule- I of these regulations.
(5) Any other forms as prescribed by the Competent Authority from time to time
6. The forms as referred in clause 5 of Part V of Schedule-I of these regulations shall be furnished to the Competent Authority, within three months from the end of the period to which they refer to or within thirty days from the date of adoption of accounts by the Board of the reinsurer, whichever is earlier, along with any other reports as may be specified by the Competent Authority from time to time.
SCHEDULE – II: FINANCE FUNCTIONS
Part I: Preparation of financial statements, management report of life insurers
1. Applicability
This part of regulations shall be applicable to all the life insurers.
2. Accounting Principles for Preparation of Financial Statements:
Applicability of Accounting Standards. – Every Balance-Sheet, Revenue Account [Policyholders’ Account], Receipts and Payments Account [Cash Flow statement] and Profit and Loss Account [Shareholders’ Account] of an insurer shall be in conformity with the Accounting Standards (AS) as notified under the Companies Act, 2013, to the extent applicable to insurers carrying on life insurance business, except that-
(1) Accounting Standard 3 (AS 3) – Cash Flow Statements – Cash Flow Statement shall be prepared only under the Direct Method.
(2) Accounting Standard 17 (AS 17) – Segment Reporting – shall apply to all insurers irrespective of the requirements regarding listing and turnover mentioned therein.
3. Premium:
Premium shall be recognised as income when due. For linked business the due date for payment may be taken as the date when the associated units are created.
4. Acquisition Costs:
Acquisition costs, if any, shall be expensed in the period in which they are incurred.
Acquisition costs are those costs that vary with and are primarily related to the acquisition of new and renewal insurance contracts. The most essential test is the obligatory relationship between costs and the execution of insurance contracts (i.e., commencement of risk).
5. Claims Cost:
The ultimate cost of claims shall comprise the policy benefit amount and specific claims settlement costs, wherever applicable.
6. Actuarial Valuation – Liability for Life Policies:
The estimation of liability against life policies shall be determined by the appointed actuary of the insurer pursuant to his annual investigation of the life insurance business. Actuarial assumptions are to be disclosed by way of notes to the account.
The liability shall be so calculated that together with future premium payments and investment income, the insurer can meet all future claims (including bonus entitlements to policyholders) and expenses.
7. Procedure to determine value of investments:
An insurer shall determine the values of investments in the following manner:
(1) Real Estate – Investment Property:
The value of investment property shall be determined at historical cost, subject to revaluation at least once in every three years. The change in the carrying amount of the investment property shall be taken to Revaluation Reserve.
The insurer shall assess at each balance sheet date whether any impairment of the investment property has occurred.
Gains/losses arising due to changes in the carrying amount of real estate shall be taken to equity under ‘Revaluation Reserve’. The ‘Profit on sale of investments’ or ‘Loss on sale of investments’, as the case may be, shall include accumulated changes in the carrying amount previously recognised in equity under the heading ‘Revaluation Reserve’ in respect of a particular property and being recycled to the relevant Revenue Account or Profit and Loss Account on sale of that property.
The bases for revaluation shall be disclosed in the notes to accounts. The Competent Authority may issue directions specifying the amount to be released from the revaluation reserve for declaring bonus to the policyholders. For the removal of doubt, it is clarified that except for the amount that is released to policyholders as per the Competent Authority’s direction, no other amount shall be distributed to shareholders out of Revaluation Reserve Account.
An impairment loss shall be recognised as an expense in the Revenue/Profit and Loss Account immediately, unless the asset is carried at re-valued amount. Any impairment loss of a re-valued asset shall be treated as a revaluation decrease of that asset and if the impairment loss exceeds the corresponding revaluation reserve, such excess shall be recognised as an expense in the Revenue/Profit and Loss Account.
(2) Debt Securities:
Debt securities, including government securities and redeemable preference shares, shall be considered as “held to maturity” securities and shall be measured at historical cost subject to amortisation.
(3) Equity Securities and Derivative Instruments that are traded in active markets:
Listed equity securities and derivative instruments that are traded in active markets shall be measured at fair value on the balance sheet date. Measurement for the purpose of calculation of fair value shall be the last quoted closing price on NSE. However, in case of any stock not being listed in NSE, the insurer may value the Equity based on the last quoted closing price in BSE.
The insurer shall assess on each balance sheet date whether any impairment of listed equity security(ies)/derivative(s) instruments has occurred.
An active market shall mean a market, where the securities traded are homogenous, availability of willing buyers and willing sellers is normal and the prices are publicly available.
Unrealised gains/losses arising due to changes in the fair value of listed equity shares and derivative instruments shall be taken to equity under the head ‘Fair Value Change Account”. The ‘Profit on sale of investments’ or ‘Loss on sale of investments’, as the case may be, shall include accumulated changes in the fair value previously recognised in equity under the heading ‘Fair Value Change Account’ in respect of a particular security and being recycled to the relevant Revenue Account or Profit and Loss Account on actual sale of that listed security.
The Competent Authority may issue directions specifying the amount to be released from the Fair Value Change Account for declaring bonus to the policyholders. For the removal of doubt, it is clarified that except for the amount that is released to policyholders as per the Competent Authority’s prescription, no other amount shall be distributed to shareholders out of Fair Value Change Account. Also, any debit balance in Fair Value Change Account shall be reduced from profit/free reserves while declaring dividends.
The insurer shall assess, on each balance sheet date, whether any impairment has occurred. An impairment loss (i.e. other than temporary diminution in value) shall be recognised as an expense in Revenue/Profit and Loss Account to the extent of the difference between the re-measured fair value of the security/investment and its acquisition cost as reduced by any previous impairment loss recognised as expense in Revenue/Profit and Loss Account. Any reversal of impairment loss, earlier recognised in Revenue/Profit and Loss Account shall be recognised in Revenue/Profit and Loss Account.
Insurer shall disclose its policy on recognition of impairment in notes to account.
(4) Unlisted and other than actively traded Equity Securities and Derivative Instruments:
Unlisted equity securities and derivative instruments and listed equity securities and derivative instruments that are not regularly traded in active markets shall be measured at historical cost. Provision shall be made for diminution in value of such investments. The provision so made shall be reversed in subsequent periods if estimates based on external evidence show an increase in the value of the investment over its carrying amount. The increased carrying amount of the investment due to the reversal of the provision shall not exceed the historical cost.
For the purposes of this regulation, a security shall be considered as being not actively traded, if as per guidelines governing mutual funds laid down from time to time by SEBI, such a security is classified as “thinly traded”.
(5) Loans:
Loans shall be measured at historical cost subject to impairment provisions.
The insurer shall assess the quality of its loan assets and shall provide for impairment. The impairment provision shall not be lower than the amounts derived on the basis of guidelines prescribed from time to time by the Reserve Bank of India, that apply to companies and financial institutions.
(6) Linked Business:
The accounting principles used for valuation of investments are to be consistent with principles enumerated above. A separate set of financial statements, for each segregated fund of the linked businesses, shall be annexed.
Segregated funds represent funds maintained in accounts to meet specific investment objectives of policy-holders who bear the investment risk. Investment income/gains and losses generally accrue directly to the policyholders. The assets of each account are segregated and are not subject to claims that arise out of any other business of the insurer.
(7) Funds for future appropriation:
The funds for future appropriation shall be presented separately.
The funds for future appropriation represent all funds, the allocation of which, either to the policyholders or to the shareholders, has not been determined by the end of the financial year.
8. Disclosures Forming Part of Financial Statements
(1) The following shall be disclosed by way of notes to the Balance Sheet:
(i) Contingent Liabilities:
(a) Partly-paid up investments
(b) Underwriting commitments outstanding
(c) Claims, other than those under policies, not acknowledged as debts;
(d) Guarantees given by or on behalf of the company
(e) Statutory demands/liabilities in dispute, not provided for
(f) Reinsurance Obligations to the extent no provided for in accounts
(g) Others (to be specified).
(ii) Actuarial assumptions for valuation of liabilities for life policies in force.
(iii) Encumbrances to assets of the company in and outside India.
(iv) Commitments made and outstanding for Loans, Investments and Fixed Assets.
(v) Basis of amortisation of debt securities.
(vi) Claims settled and remaining unpaid for a period of more than six months as on the balance sheet date.
(vii) Value of contracts in relation to investments, for:
(a) Purchases where deliveries are pending;
(b) Sales where payments are overdue.
(viii) Operating expenses relating to insurance business: basis of allocation and apportionment of expenditure to various segments of business.
(ix) Computation of managerial remuneration.
(x) Historical costs of those investments valued on fair value basis.
(xi) Basis of revaluation of investment property.
(xii) Provisions made for policy cancellations during free look period in current year and previous year duly certified by the appointed actuary
(xiii) Disclosure that contributions made by the shareholders to the Policyholders’ A/c are irreversible in nature, and shall not be recouped to the shareholders at any point of time in future with reference to the general meeting of the insurer at which such prior approval of the shareholders has been obtained.
(2) The following accounting policies shall form an integral part of the financial statements:
(i) All significant accounting policies in terms of the accounting standards and significant principles and policies given in Part I of Accounting Principles. Any other accounting policies, followed by the insurer, shall be stated in the manner required under Accounting Standard AS 1.
(ii) Any departure from the accounting policies shall be separately disclosed with reasons for such departure.
(3) The following information shall also be disclosed:
(i) Investments made in accordance with any statutory requirement should be disclosed separately together with its amount, nature, security and any special rights in and outside India;
(ii) Segregation into performing/non-performing investments for purpose of income recognition as per the directions, if any, issued by the Competent Authority;
(iii) Assets to the extent required to be deposited under local laws or otherwise encumbered in or outside India;
(iv) Percentage of business sector wise;
(v) Bases of allocation of investments and income thereon between Policy-holders’ Account and Share-holders’ Account;
(vi) Disclosure of policy and principles for provisioning for policy cancellations during free look period, based on assumptions and experience, duly certified by the appointed actuary
(vii) Any other information as may be specified.
9. General Instructions for Preparation of Financial Statements
(1) The corresponding amounts for the immediately preceding financial year for all items shown in the Balance Sheet, Revenue Account, Profit and Loss Account and Receipts and Payments Account shall be given.
(2) The figures in the financial statements may be rounded off to the nearest Lakhs.
(3) Interest, dividends and rentals receivable in connection with an investment should be stated at gross amount, the amount of income tax deducted at source should be included under “advance taxes paid” and taxes deducted at source.
(4) For the purposes of financial statements, unless the context otherwise requires, –
(i) the expression “provision” shall, subject to (v) below mean any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets, or retained by way of providing for any known liability or loss of which the amount cannot be determined with substantial accuracy;
(ii) the expression “reserve” shall not, subject to as aforesaid, include any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing for any known liability or loss;
(iii) the expression “capital reserve” shall not include any amount regarded as free for distribution through the profit and loss account; and the expression “revenue reserve” shall mean any reserve other than a capital reserve;
(iv) The expression “liability” shall include all liabilities in respect of expenditure contracted for and all disputed or contingent liabilities.
(v) Where-
(a) any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets, or
(b) any amount retained by way of providing for any known liability or loss, is in excess of the amount which in the opinion of the directors is reasonably necessary for the purpose, the excess shall be treated as a reserve and not provision.
(5) The company shall make provisions for damages under lawsuits where the management is of the opinion that the award may go against the insurer.
(6) Extent of risk retained and re-insured shall be separately disclosed.
(7) Any debit balance of the Profit and Loss Account shall be shown as deduction from uncommitted reserves and the balance, if any, shall be shown separately.
(8) All insurers are required to maintain separate investment accounts for the shareholders and the policy holders and the income/ losses accrued / capital gains/losses on the investments is to be credited /debited to the Revenue Account/ Profit & Loss Account, as the case may be.
10. Contents of Management Report:
There shall be attached to the financial statements, a management report containing, inter alia, the following duly authenticated by the management: –
(1) Confirmation regarding the continued validity of the registration granted by the Authority;
(2) Certification that all the dues payable to the statutory authorities have been duly paid;
(3) Confirmation to the effect that the shareholding pattern and any transfer of shares during the year are in accordance with the statutory or regulatory requirements;
(4) Declaration that the management has not directly or indirectly invested outside India the funds of the holders of policies issued in India;
(5) Confirmation that the required solvency margins have been maintained;
(6) Certification to the effect that the values of all the assets have been reviewed on the date of the Balance Sheet and that in his (insurer’s) belief the assets set forth in the Balance-sheets are shown in the aggregate at amounts not exceeding their realisable or market value under the several headings – ” Loans”, ” Investments”, “Agents balances”, “Outstanding Premiums”, “Interest, Dividends and Rents outstanding”, “Interest, Dividends and Rents accruing but not due”, “Amounts due from other persons or Bodies carrying on insurance business”, ” Sundry Debtors”, ” Bills Receivable”, ” Cash” and the several items specified under “Other Accounts”;
(7) Certification to the effect that no part of the life insurance fund has been directly or indirectly applied in contravention of the provisions of the Insurance Act, 1938 (4 of 1938) relating to the application and investment of the life insurance funds;
(8) Disclosure with regard to the overall risk exposure and strategy adopted to mitigate the same;
(9) Operations in other countries, if any, with a separate statement giving the management’s estimate of country risk and exposure risk and the hedging strategy adopted;
(10) Ageing of claims indicating the trends in average claim settlement time during the preceding five years;
(11) Certification to the effect as to how the values, as shown in the balance sheet, of the investments and stocks and shares have been arrived at, and how the market value thereof has been ascertained for the purpose of comparison with the values so shown;
(12) Review of asset quality and performance of investment in terms of portfolios, i.e., separately in terms of real estate, loans, investments, etc.
(13) A responsibility statement indicating therein that: –
(i) in the preparation of financial statements, the applicable accounting standards, principles and policies have been followed along with proper explanations relating to material departures, if any;
(ii) the management has adopted accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the operating profit or loss and of the profit or loss of the company for the year;
(iii) the management has taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the applicable provisions of the Insurance Act 1938 (4 of 1938)/Companies Act, 2013, for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;
(iv) the management has prepared the financial statements on a going concern basis;
(v) the management has ensured that an internal audit system commensurate with the size and nature of the business exists and is operating effectively.
(14) A schedule of payments, which have been made to individuals, firms, companies and organizations in which Directors of the insurer are interested.
(15) Confirmation of compliance with domestic, statutory, regulatory and other laws in the countries in relation to subsidiaries, associates, joint ventures and other arrangements.
(16) Any other information as may be specified.
11. Preparation of Financial Statements
(1) An insurer shall prepare the Revenue Account [Policy-holders’ Account], Profit and Loss Account [Share-holders’ Account] and the Balance Sheet in Form A-RA, Form A-PL and Form A-BS, as prescribed in this Part, or as near thereto as the circumstances permit.
Provided that an insurer shall prepare the financial statements and the schedules therein for the under mentioned businesses separately and to that extent the application of AS 17 shall stand modified: –
(i) Linked Business- (a) Life, (b) Pension, (c) Health, (d) Others
(ii) Non-Linked Business Participating- (a) Life, (b) Pension, (c) Health, (iv) Others
(iii) Non-Linked Business -Non-Participating- (a) Life, (b) Pension, (c) Health, (d) Others
(iv) Business within India and business outside India.
(v) Any other segment as may be specified.
(2) An insurer shall prepare separate Receipts and Payments Account in accordance with the Direct Method prescribed in AS 3 – “Cash Flow Statement”.
